"The question for the near future is only who is going to pay..."
Turkey, when they have joined the EU prison.
"...and this is not so much an economical as political question."
Politically, the people of Europe will pay after the Sultan has gained direct control over them.

For the countries of Central and Eastern Europe the budget 2014-2020 is probably going to be last one out of which they will get large cohesion and structural funds. From 2020 western European countries will no longer pay these countries via the eu as the standard of life there will reach the European average.

If Turkey, or indeed Ukraine joins the eu, they will get the money the CEE region is getting now. Thats how the eu works. Around 2025 the countries of CEE like Poland, Slovakia and the Czech Republic will become massive net payers - now they are net receipents. Any further expansion they will cofinance too.

Don´t people see this is all politics played by Moody´s? Why do you think you deserve a downgrade by Moody´s and US doesn´t? Growth in the US is sustained by massive borrowing. Their public debt is more than 100% of GDP and increasing exponentially! If each Briton would owe so much as each American (30 000 USD/capita for UK compared to 50 000 USD/capita for US) that would also reflect favourably in your GDP.

Considering their Debt/GDP ratio and the slowdown in the economy, the GBP was already under pressure - the weakness speeded up with the downgrading (or as the downgrade was expected in 2013 the government spoke negatively to have a sharp correction that we saw - a "twin effect") - so a weak GBP is great for the medium term - if this continues for the next 3-4 years, it would help revive the economy - the BIG BUT is how do you cut the debt - taxing the average person isnt the way out - it will only cause more pressure on them and create more social imbalance resulting in more social unrest - then we dont have to worry about a weak GBP and a non AAA rated country - politicians need to make the deep cuts within rather than look at the direct taxes. They can't Tax their way out of this one.

AAA is gone, oil ressources from the northern sea and FDIs are decreasing, voodoo business of the city is down but taxes and xenophobia are up and the country is desparately trying to keep its society together avoiding further city lootings and the total break down of Great Britain which could end up in best case in a Japanese scenario for sure

Now brothers and sisters from the Atlantic you have shot your powder by sparking and fueling the Euro crisis with your media and financial market players in order to camouflage your own shortcomings of your system's set up... lets wait and see how the pound sterling will survive in the next few years as the count down is running for a melt down at the Themse

This should be a clear warning sign to the UK and US governments that offsetting interest onbonds bought by QE is not enough,

The UK sits unhappily at the very boundary of what debt burden is acceptable for a AAA rated economy, the US is well on track to soon reaching it. When growth disappoints, downgrade is inevitable.

At the moment the UK public sector net debt to GDP ratio is about 65%, equivalent to about £1 trillion (these numbers exclude the debt of the part nationalised banks). Debt servicing costs are over £50 billion per year – a large chunk of UK's annual deficit. Additionally UK's debt position is likely to deteriorate before it improves.

the Bank of England has £300 billion+ of gilts that it holds as part of the Quantitative Easing programme, where Treasury was effectively paying interest to itself on assets that it bought with “free” printed money. Could UK politicians decide that this is a waste of time, admit they cannot sell these gilts back to the market in any case, and that the UK may as well just cancel the gilts bought for the nation to inject "liquidity credit" into banks?

The simple truth is that QE, necessary as it is and was, will topple these economies unless "free money" is neutralised by offsetting absurd Central Bank assets against national deficits and debt. The interest portion alone is woefully too small, and the bonds can never be sold - austerity will simply accelerate the rise of interest rates, compounding the dilemma of debt compounding upon debt in a hopeless circle of money chasing its own tail.

Time to stop the merry go round before the people get thrown off, while the bankers get away scot-free.

If you consider that crises is just about a lack of demand. Then you can bridge that gap with more money until demand accelerates.

But all Western nations bailed-out - just their banks. That money, had come from higher debts, sticks in banks today. Now - on top of already high debts - even more debts must be taken out. The UK has afforded a banking sector, which assets were seven times higher than UK's GDP. Even the US were not so stupid and ignorant.

What we see is just money printing. And that growth comes just from higher spending and higher debts. Demand is just fake and not real. The UK should itself not compare to the US. The US has much more resources and opportunities to get out of that crises. Furthermore, please consider that the US is in a more favourable position as regards several fundamental data - just look at unit labour costs.

Actually I do not understand why you name the UK in one line with US?
The US will catch up in terms of manufacturing. I am sure it will come. There is no doubt about their abilities in order to re-gain world market shares against China.
But, from where will the UK take resources needed for that?

Your last point about not being reliable is correct. Liable are now all taxpayers and not owners of banks - shareholders. They all are very lucky since taxpayers set them all risk-free. On the other hand, all profits made were remitted to their bank accounts.

For a certain time it is good to print money. But that is applicable only in the short run in order to
make reforms and to soften those hard reforms (cuts). Sooner or late inflations will come.
Money supply has stood in no rational ratio to the UK's output.

Neither is GPB a reserve currency nor necessary to purchase oil or raw materials - but the USD.
De facto the US is still the leading super-power in ALL fields, despite the crises. The UK is far, far away from any position having a perspective to re-gain that role.

British authorities have looked deeply into that matter. And they compared the UK with France because both are very similar and their situations comparable. Furthermore, both countries share similar opportunities in order to find a way out the misery.

In my point of view that is a good approach. And the UK is much further in determining how the UK can be enabled to come back to prosperity. That process has not even started in France if you refer to Mr Hollande and his policies.

Please consider my statements not as blaming or insulting. I just try to be neutral, moreover, fact and solution oriented.

Well, I do not judge that downgrade as negative for the UK. Actually, it is in its favour.
It exports are performing behind exceptions. A devalued currency can help to support exports.

If imports became expensiver the people are by trend more obliged to purchase services and goods made in the UK. The UK can be glad having its own currency. It makes the country much more flexible and it enables government to consider more options to manoeuvre the UK through the crises.

On the other hand - sad but true. The downgrade was very overdue. No arguments were available why the UK should be granted a top-solvency whereas other nations, in a similar position and similar data, were already downgraded.

Well now France and the British Empire are members of the same downgrading club :)
Will be a rather thrilling development to see which country will be the next member of this exclusive club.
As the British Empire and la Grande Nation since ever were sticking close together in their entente cordiale it is a matter of course that both of them are members of the same club:)
The next weeks will be very thrilling and offer to all of us the best kind of entertainment on a big stage:)

But you won the war and the Battle of England:)
And Germany lost the war against you.
This should be an eternal satisfaction to you.

And BTW : It has been quite usual and common since 1945 that the British have been naming Germany the Third Reich until today:)
And with the British Empire, Germany never could compete.
Germany does not need good ambassadors in Western countries because the reputation of Germany in the public and political opinion in France as well as in Britain and in other Western countries never has changed since 1945 and therefore never will change.
So it does not make any sense if the Germans are friendly or not.

"But you won the war and the Battle of England:)
And Germany lost the war against you.
This should be an eternal satisfaction to you."
Well first off I'm Australian so yes we were part of the allies that defeated the Nazis. As to why think that should be of eternal satisfaction is beyond me.

"And BTW : It has been quite usual and common since 1945 that the British have been naming Germany the Third Reich until today:)"
Yes idiots have been doing this for the past 68 years. Idiotic, juvenile, simplistic, racist, bigoted, dumbass fcukwits!

As I have already alluded to your initial statement being akin to this; this is the company you keep. Or indeed this is the person you are.

Two wrongs don't make a right.

"And with the British Empire, Germany never could compete."
Actually you obviously don't know your history very well.

"Germany does not need good ambassadors in Western countries because the reputation of Germany in the public and political opinion in France as well as in Britain and in other Western countries never has changed since 1945 and therefore never will change."
Germany has a great reputation. I'm beginning to even wonder if you have ever travelled anywhere.

Enjoy your schadenfreude. It would seem you have very little in the way of intelligence to enjoy.

Though I have no German ancestry, I not only speak German but have lived in Germany. Having also met German backpackers in nearly every country I have visited as well as the many that are currently in Melbourne; I would never ever think that that person was representative of anything but the very smallest minority of Germans.

Nobody enjoys Schadenfreude in Germany.
Germans have enough to do with themselves and apart from all that foreign affairs wherever they might happen, never will be part of a German business.

May be the reputation of Germany is somewhat better in Australia but I was talking of Great Britain, France and other West European countries.
While the reputation of Germany in China, Russia and all East European countries is nothing but excellent, you will find in the Western part of Europe just the opposite and an extremely hostile continuation of all anti-German sentiments since 1945.
Nothing has changed at all and we have to accept this kind of hatred and hostility as a never ending matter of course.
Just Berlusconi was expressing how a wide majority of Italians really thinks and therefore they will vote for him with an immense majority:)
And the Greeks have already given their clear statement.
So, where do you see a good reputation of Germany in Western countries?

And the huge everlasting anti-German campaigns through all over the British Empire I am dreaming or what?
You must be a German masochist if you do not want to see how and what the British and French are thinking about Germans.
In Greece they show you each day how much Germany is regarded by each Greek and the opinion of Berlusconi you also should know as he is representing the opinion of Italy.

A visit to Britain, France or other Western countries has been since ever a higher risk as a trip to Kabul.

If you want a cheap thrill and some entertainment, just check out the off-balance-sheet liabilities of the entire euro-zone, you know, the euro-zone Germany is going to have to mutualise banking, debts and taxation with to stop WWIII.

If you think British think badly of the Germans, well, you are even more stupid than I first thought. Us poor Brits have an inferiority complex with the Germans with regards everything from football to engineering. We have serious respect for the Germans. How can you not respect a nation that almost single-handedly took over the entire world?

Also some of us who understand history know that many of us in the UK and Germany (the white folk) share a common ancestry. The Angles and Saxons were German tribes who took advantage of Roman weakness to splinter and take the islands of the UK. They gave us "Eng-er-lisch" and our warrior ways.

There are only 4 things I do not like about Germany.

1. Fundamentally racist and despite being Protestant Christians refuse to accept that all men are equal regardless of skin colour
2. If Germany wasn't so scared she would already have mutualised debts, banking laws and tax with the PIIGS. We would now be enjoying talking about the upswing rather than continually revisiting the drama of the financial crisis
3. Germans dominate the very highest echelons of Omaha Hi-Low @ Pokerstars.
4. Germans still haven't developed a sense of humour about the war.

The Anglo-saxon ancestry has been considerably diluted over the centuries by assimilation with the celtics and Norman conquest of England. Not to mention the many Viking raids and settlements in Britain.

The Norman conquest also had a big hand in creating the English as it is spoken now.

The British are a mongrel race - Vikings, Angles, Saxons, Normans, celtics.

Actually, most (educated) British are very kind and open-minded. Opinion about Germany and Germans has changed over the last years. I am a bit surprised how closely and positively they look at Germany today. But again, that is another story.

I guess that this board is not the correct place to discuss history nor does the head line invites to any discussions about British-German relations in the past.

"How can you not respect a nation that almost single-handedly took over the entire world?"

Europe is not the "entire world".
Just ask the Asians who were conquered by the Japanese Empire.

And Germans steamrolled by smaller countries with much weaker armies but when faced with big countries. Except for France
which gave up without a fight, they couldn't conquer Russia and didn't stand a chance even with the RAF which beat them in the battle of Britain.

Presence is always based on the past.
No actual situation without being aware of the past.
May be it became a little better the last years but as you can see all around in Europe the shadows of the past are always present.
And as long as the shadows of the past are present a cooperation of European nations has no chance.
So the past is stopping the Europeans solving the problems of today and tomorrow.
History has always to do a lot with the future.

Dear Scarlett, casualties for the so-called Battle of France are estimated between 55,000 and 85,000 for France and between 27,000 and 47,000 for Germany. One has to feel sorry for all those unfortunate Aryan superheroes who slipped on banana skins, but that served them well for murdering those poor harmless French soldiers.

I hate to say it but the "targeted inflation of 2%" and the obsession with austerity is not what is needed to get the UK (or any other country right now) out of recession. The time to cut back on government spending is when the economy is strong and the business cycle is trending higher. The Great Depression was the Great Depression because governments decided to cut back on spending and the money supply instead of spending more and increasing inflation. There is nothing wrong with running deficits when the economy is weak. The USA has decided to keep spending while printing money and it seems they are slowly but surely climbing out of their recession. A lower currency isn't a bad thing either as it is a way of stimulating manufacturing and exports.

I hate to say it but the "targeted inflation of 2%" and the obsession with austerity is not what is needed to get the UK (or any other country right now) out of recession. The time to cut back on government spending is when the economy is strong and the business cycle is trending higher. The Great Depression was the Great Depression because governments decided to cut back on spending and the money supply instead of spending more and increasing inflation. There is nothing wrong with running deficits when the economy is weak. The USA has decided to keep spending while printing money and it seems they are slowly but surely climbing out of their recession. A lower currency isn't a bad thing either as it is a way of stimulating manufacturing and exports.

Unfortunately, an economy in which services (and especially financial services) are predominant is not amenable to the usual fixes. Having one's own currency helps if you export goods since devaluation boosts exports. Devaluation is not so useful if confidence in financial products is crucial. Neither are downgrades. Austerity... Inflation...

U.K. IS, NOW GENERALLY DEEMED TO BE SUSISTING NOW, ON ITS FINANCIAL BUSINESS, AIR & WATER CARRIERS, NUCLEAR-POWER-KNOW-HOW AND INTELLECTUAL PATENTS GENERATED BY HER UNIVERSITIES. IT HAS THE BEST PUBLIC-HEALTH-SYSTEM LIMITED FOR HER SUBJECT IN THE WORLD. THE EDUCATION, THOUGH HIGHLY SUBSIDIZED FOR HER OWN STUDENTS AND A PRETTY BUSINESS FOR THE STUDENTS, OTHER THAN FROM EUROPE. ONE GREAT SHORT COMING IN A VERY NEGLIGIBLE DOWN GRADING, COMES FROM THE 1) PENDING FISCAL CONSOLIDATION AND 2)DEBT-BURDEN BILLS. PROBABLY, WITHDRAWAL OF THE FORCES FROM AFGHANISTAN,WILL HELP OVERCOME IT. BUT ANY CUT IN THE HEATH-PROVISIONS, WILL ONLY NEED THE DISASTROUS U.S. PATTERN OF INSURANCE LINKED HEALTH CARE PLANS.

No need to shout at us. Unless this is the first time you use a computer and don't know how to use "Caps Lock", you are being a bit unpolite. I stopped reading after the third line, reading capitals is just ennoying.

I assume you find capital letters offensive in nature, however not the curse words, derogatory language and stereotype name callings used so regularly by many americans as a manifestation of their freedom of speech over the air and on many websites. I did not see any offensive or threatening remarks herein, so why this sudden need to call someone to order as if you were the web police.

The world´s financial hub has brought upon itself a colossal total debt of 940% to GDP, a 50% higher ratio than in Japan. Are you able to serve the debt or just copy the Greeks? You can also keep on pretending steadily worsening figures do not matter like everybody else does it in EU.

Most of that debt is private, and most private debt has higher yielding assets (with extra collateral) to back it up. If that's the case, there's nothing to worry about. If however London's financiers made bad investments/ asset purchases and is sitting on trillions in unrealised losses (thanks to the beauty of book-value accounting, this is entirely possible), then the emperor might not have any clothes.
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The sad thing is that London's financial sector is so damn murky and opaque, that we don't know whether debts are well backed. The big four say that banks are robust; banking regulators aren't publicly denouncing any bank (except RBS). Given recent history, that inspires no confidence at all. Yet, international markets have been pumping plenty of capital into the UK lately - so markets do not seem to have latched onto doubt.
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The UK taxpayer is not liable for any of that debt. Unless banks become liquidity strained an require further government support... (Though, even private debt may result in extreme scarcity of bank finance to consumers or businesses, and may result in depressed or unimpressive demand for over a decade.)
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Things will hopefully turn out far better than I fear (but there are financial risks hanging over our necks here, and those risks are impossible for anyone to assess confidently - even for regulatory authorities & senior banker).

This is what we all hope. But we don't know - banks are run by small elites, asset valuations are not transparent and the big four have time-after-time failed to identify fraudulent activity & major asset miss-pricing; and they have shown particular keenness to support tax avoidance; and they complicate their own incentives by selling peripheral services (right down to IT consultancy) to the businesses they audit.
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Furthermore, many asset valuations are quite sensitive to market activity, to attempts at buying/ selling significant quantities, and are often especially vulnerable to the liquidation of a third financial institution. Liquidate one bank, and that introduces systemic risk that can pull down the rest.
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We all hope that in a future case of bank failure, government would successfully liquidate the bank, while meeting deposit guarantees, without impacting on government debt, without causing sudden contraction of lending activity and without causing contagion to other banks. But we all know it wouldn't work out that way. Osborne can promise what he likes - we all know that when the chips are down (if it comes to that), he will behave differently (unpredictably). And it wouldn't be pretty for taxpayers.
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Our financial system is cheese. We need something better.

The US and UK have already signed a treaty, and the UK has a habit of keeping to treaties.

The Big Four do nothing illegal, and what they have done is follow international practice, you should worry more about those countries where the Big Four are a bit edgy.
The Big Four also proposed reforms after Enron that would have meant that big companies would not have been able to hide things from investors, it was governments that failed to tackle that hurdle including the apparatchiks of your beloved EU.

The moral is to pay attention when an accountant suggests something, as it is probably important and you may well regret not listening in the future.

I completely agree with your fine tuning my pointed message and the million dollar question remains whether the situation is sustainable or can some local Bankia closer examined become owner of negative equity that launches the Deluge.

USA´s state of economy which Moody thinks it is better than UK´s: deficit is around 7% of GDP. Reported inflation rate is low but people complain about rising prices and question their official inflation index. Economic growth is maintained by public spending and massive borrowing. For instance, GDP grew 3% just before elections due to military spending. The following quarter growth was negative. Each American owes more money than any other citizen in the world. Meanwhile, Obama plays golf with Tiger Woods.

Maria: "USA´s state of economy which Moody thinks it is better than UK´s: deficit is around 7% of GDP." Yes and UK deficit is at around 8% while the US one is at 7%, the French one at 4.5%. UK is the worst, that's correct.

You are looking at spending as if quantity alone and not quality is relevant. Health care in the USA consumes at least 30% more of the gdp than anywhere else in comparable societies. And this, in a society where a greater proportion of citizens do not have access to medical care and where most studies worldwide will conclude that infant mortality and life expectancy amongst other key indicators are ranking at the bottom of the list. The world reads about a mass murder event on routine basis in the newspaper, making them question all your expenditures for law and order rather non productive. Your education system is without any question the most expensive in the world, and yet the results are barely adequate. Could it be said that your deficit with respect to gdp may be somewhat slightly lower however not producing much.

guest-illmae - US debt to GDP ratio is already more than 100% and each American owes almost the double of each Briton, meaning that US future growth is compromised for much longer. Unlike US, European countries choose austerity because they want to play safe and don´t want to compromise their children´s future.

I always found strange this argument of protecting our children's legacy, mostly when political decisions found in time to be wrong can lead to the worst human atrocities. Moreover, a case can be made that austerity measures will lead to a deepened economic malaise. Austerity is basically a political decision to make some people worse off for the benefit of others, and this in a climate where more and more people have a profound disdain for politicians. Recent polls suggest that more than two thirds of the population consider that their own government is protecting financial institutions and big business interests at the expense of its own electorate. So raising your children not to respect institutions in a system which is deemed rigged cannot be deemed to be a great legacy. How can a system which is creating more poverty than otherwise be considered to be protecting your children's future. Libertarians will profess that the economy has to hit rock bottom, for the cleansing process and the natural order of things to do its work and for prosperity to return, though history shows that this will lead to possible military conflicts in a society where military weapons can wipe out the entire world in a matter of minutes. European countries have not chosen austerity, they were forced into austerity, including the Brits as if I remember well, it was said to be the only way to protect the good credit standing of its nation, which is now put in jeopardy by credit rating agencies despite the early enactment of austerity measures.

I can only imagine a world where the vultures feed on the weak and frail, with those whom will offer least resistance under constant attacks. A world where people believe that to get ahead given that they individually cannot take on the big powerful interest, that they have to keep those deemed less fortunate, i.e. weaker, down in order to maintain their own social and economic standing intact. All of this is going on while dictators in oil or mineral rich nations are transacting with heads of powerful states to steal all the public wealth leaving behind a huge amount of debt calling it the people's problem. As usual some day, those big powerful interests will begin fighting one another as sharing is not in their own personal vocabulary, and as resources are running dry everywhere else to protect their own dignity and continue to grow bigger. In case you did not know this is an economic war, and wars are easier to start than they are to stop. One day, they will have to rely on those people currently believed expendable to take up the quarrel with the foe, and that will be your children you tried to protect in vain. I understand that such a scenario may sound far fetch, but I suppose that when your parents or grand parents served you warnings following their great depression experience, you must have believed that far fetch as well. I am just saying that making matters worst, is not a solution, and that therefore austerity measures so far have only led to what was meant to be avoided.

Were aren´t making things worse, we´re putting an end to a frenzy spending caused by easy access to money and by irresponsible liders. Much money was being wasted with corrupt and useless government and state spending. This almost put an end to the European social model. We have to reform in order to attain a sustainable model, whereby we can help the ones who really need, instead of giving everything free to everybody, because simply there isn´t enough money for that.

Buttonwood: you suggest that foreign buyers will be put off by the weakness of sterling, and that the recent fall in the currency will have affected their returns.
This is unlikely since the vast majority of foreign institutional holders will hedge the currency, unless their decision to hold UK gilts is partly motivated by a desire to gain sterling exposure.

This downgrade was absolutely long overdue, knowing that Austria, France and the USA have been downgraded already, but whose economies are actually in better shape than Britain's. The British economy seems to go from bad to worse. High inflation, declining purchasing power, a deteriorating budget deficit, a triple dip recession and disappointing exports, despite a falling pound sterling. I wouldn't be surprised by a Sterling crisis developing around 2014/2015, when it will dawn on the markets that fiscal policy (Osborne) and monetary policy (BOE's QE programmes) in Britain have totally failed.

Even us poor expatriates , living in nice climates , could see this coming . Not so long ago the pound was 1.60 to the dollar , now 1.52 ! I hope some managed to get out in time . I was one if the stupid Conservatives who trusted this " brillant " government ! The downgrade had to come .

Forget Moddy´s, they aren´t trustworthy. How can they be if they´ve kept three AAA for USA ?? USA economy is in much more dire straits than UK and still keeps its three AAA? That´s ridiculous. Standard and Poor, on the other hand, downgraded USA and now they are being prosecuted by USA government for some silly reason.

The UK economy has to be transformed from a debt-fuelled consuming economy, in which private consumption is equivalent to two-thirds of GDP, to one powered by investment and exports.

The UK is suffering from a lack of demand, with consumers and firms so fearful that they refuse to spend.

The UK economy will experience stagflation for many years to come due to massive debt and aging population.

UK’s total debt has risen from twice the size of the GDP in 1990 to over five times the GDP today. Only Japan has more debt and its economy has been stagnating for more than 20 years.

The UK has not run a trade surplus since 1983.

The great purging that should have happened after the 2008 financial crisis never happened. Instead, the government has bailed out the banks, slashed interest rate to 0.5%, injected £375 billion into the financial system via QE and rewarded irresponsible lenders and borrowers while punishing responsible savers.

Until the zombie banks, businesses and property sector are cleared and the “extend and pretend” game is stopped, the UK economy will not recover.

Hi,
Downgrading Britain, sounds French to me. “Same procedure as every year, George ...”. With a shoe shine policy of supporting the financial sector, which can look after itself and neglecting the nuts and bolts of the economy George has made a mess. Wallowing in quick sand holes developed in the watering can just at the wrong time. A mid-term crisis may turn into a mid-life crisis.